Heinberg: Peak Oil Comments to the National Petroleum Council

posted Monday, March 12, 2007

On October 5, 2005, U.S. Energy Secretary Samuel Bodman requested that the National Petroleum Council conduct a study of global oil and natural gas supply. The motivating concern stated by the Secretary was an investigation into the timing of and responses to peak oil—the plateauing and subsequent decline of world oil production.Hundreds of organizations and individuals have contributed input to the process. During two multi-hour web-cast teleconference calls on February 23 and March 1, the NPC heard comments from Colin Campbell, Jean Laherrere, Robert L. Hirsch, Steve Andrews, Congressman Roscoe Bartlett, Matt Simmons, Randy Udall, Roger Bentley, Richard Heinberg, and several others. A draft of the study is due during April, with the final report due by late June, 2007. For further information, check periodic postings of informational powerpoint slides on the NPC’s website (www.npc.org).

The statement by Heinberg to the NPC is included below.

The failure of official agencies Official agencies have consistently failed to accurately forecast national and regional oil production peaks. Three examples:

During the 1960s, the U.S. Geological Survey issued successive reports forecasting a peak in U.S. oil production around the year 2000; this followed M. King Hubbert’s controversial forecast of a peak around the year 1970. Confounding the official view, U.S. oil production did reach its maximum in 1970 and has been generally declining ever since, despite the subsequent discovery of the largest conventional oilfield ever found in North America—on the North Slope of Alaska—in 1968.

In their International Energy Outlook (IEO) 2001 report, the EIA stated that “The United Kingdom is expected to produce about 3.1 mb/d by the middle of this decade, followed by a decline to 2.7 mb/d by 2020,” implying a peak around 2005. Britain’s oil production from the North Sea actually peaked in 1999, two years before this forecast was issued, at 2.684 mb/d, declining to less than 1.7 mb/d by 2005.

In their IEO 2003 report, the EIA predicted that the country of Oman was “expected to increase output gradually over the first half of this decade” with “only a gradual production decline after 2005.” In fact, Oman’s production had already peaked in 2000, three years before the forecast was published.

Reasons for failure Why were these agencies wrong? There are several possible reasons. One has to do with psychology. The oil industry is comprised of people whose job entails supplying the very lifeblood of modern industrial society. They do this job with some pride. They may therefore understandably perceive suggestions that oil production may soon peak as an affront to their competence.This notion seems supported by the irrationality of the way in which many in the industry (including representatives of CERA and ExxonMobil) typically mischaracterize the evidence and arguments of the depletionists, and ridicule the messengers rather than engaging in an honest discussion of issues and a dispassionate search for the truth. This same psychological motive may also partially explain repeated failures to foresee national peaks in oil or gas production.People in the industry are attempting an impossible task—to continuously increase the supply of a non-renewable resource. That they should eventually fail to do this is no reflection on their technical competence or the degree of their effort. Meanwhile, society desperately needs realistic assessments of this vital resource rather than macho assurances.Moreover, there is typically insufficient appreciation of the powerful influence of giant oilfields on the depletion curves of large regions. Giant oilfields tend to be found early in the exploration history of a region; and, when they go into decline, the entire region tends to peak, since smaller fields, even when found in great numbers, usually cannot make up for the decline of the giants—at least, not for long.

It seems to me that these tendencies that have caused official agencies to miss national production peaks are also leading them to miss signs of the impending global peak. The facts that most of the world’s giant fields were discovered decades ago and that we are now seeing declines in the world’s largest oilfields—Cantarell, Burgan, Daqing, and possibly Ghawar—should certainly be setting off alarm bells.

However, many analysts have lulled themselves into complacency by, for the purposes of calculation, treating low-grade hydrocarbon resources as if they were conventional oil, thereby arriving at inflated figures for world oil reserves. The likely production rates from the heavy oil in Venezuela, the Alberta tar sands, and the oil shales of Colorado will not be sufficient to offset declines from giant fields of conventional oil. The “peak oil” discussion is not about reserves, it is about flow rates.

The state of the industry Further, the industry is ill equipped to make up for declines in the larger fields by heroic efforts at exploration. If new fields are to be tapped quickly enough and in sufficient quantity to avert a near-term peak (if that is even possible in principle), then extraordinary rates of drilling will be required. However, these efforts must overcome the following hurdles:

Equipment is aging: the average floating drilling rig is 22 years old, the average jackup rig is 24 years old, the average land rig is 25-30 years old. [biz.yahoo.com/e/061103/nov10-q.html]

There is currently a global shortage of rigs, and the cost of renting them is skyrocketing (E & P costs are up 53% in past 2 years, according to Rigzone). More rigs are being built, but that takes time. “That means companies are getting less and less bang for the bucks they put into exploration and production, despite high commodity prices. And with oil well below last year’s $76.70 record . . . companies may consider delaying, if not canceling, some projects.” (Houston Chronicle, Feb. 13)

There is also a shortage of trained personnel, since the industry has been shedding geologists and engineers for the past two decades. “As an aging generation of workers retires, industry experts say the resulting shortfall in skilled labor could lead to an increase in delays and problems on mega oil and gas projects…. Over the next decade, a wave of retirements will strip the industry of its most skilled project managers, just as some of the most complex operations ever attempted are supposed to come on stream. The combination, they said, could very well lead to an increase in delays.” [www.rigzone.com/news/article.asp?a_id=41306]

Conclusion: It is reasonable to assume that the peak is here or very close Meanwhile, we observe that world production of crude + condensate has been static or declining since May 2005, when it achieved just over 74,000,000 barrels/day. This has happened in the context of very high prices—which should, under ordinary circumstances, have been incentive to expand production. This suggests that regular conventional oil has already peaked.The peak for all liquids cannot be far behind.Consequently, I see no plausible scenario in which a liquid fuels crisis arising within about 5 years can be averted on the supply side. This is too little time in which to compensate for declines by producing large quantities of liquids-from-coal or biofuels, if that is even possible. And that in turn means that demand-reduction strategies will be required in order to balance the available supply with requirements for transport fuels. The sooner such strategies are identified and implemented, the better the prognosis for societal adaptation.

Richard Heinberg is the author of three books on oil depletion, including The Party’s Over and The Oil Depletion Protocol. He travels internationally to speak on the subject and is a recipient of the M. King Hubbert Award for Excellence in Energy Education. He explains “Peak Oil” in several film documentaries, including Leonardo DiCaprio’s upcoming “11th Hour.”

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